IAS 36Chapter 5Lesson 1
Value in use (1): elements of the calculation and basis for projections
Step 1 of 9Learning objectives
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Value in use is the present value of the cash flows the entity expects from the asset. This lesson presents its elements and its two calculation steps, then the rules that govern projections: reasonable and supportable assumptions, the most recent approved budgets, a horizon of five years at most unless justified, and steady or declining growth beyond. A full five-year calculation with a terminal value shows the decisive effect of these choices.
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Learning objectives
- Explain the elements reflected in value in use and the two steps of its calculation.
- Distinguish value in use, which is entity-specific, from fair value, which is market-based.
- Apply the requirements on projections (approved budgets, horizon, growth rate) and assess their reasonableness.
- Calculate value in use by discounting annual cash flows, with explicit discount factors and a terminal value.